Most banks adopt centralised systems

A total of 88 percent of banks in Bangladesh have put in place centralised core banking systems, which are allowing them to avert fraud, cut cost and provide real-time services online to customers, according to a new research.

The core banking software (CBS) usage rate is up from 59 percent in 2010, showed the research of the Bangladesh Institute of Bank Management (BIBM).

The findings of the research titled "An Evaluation of Core Banking Software in Banks of Bangladesh" were shared at a workshop at the BIBM auditorium in Dhaka recently. Md Mahbubur Rahman Alam, an associate professor of the organisation, presented the paper.

Under the centralised system, a bank manages its business and operations from its head office on the back of strong technological backbone.

As a result, a traditional branch has just become a mere sales and services point and is banned from approving loans. Even a branch manager can't open an account without sending it to the central processing system.

In 2010, a quarter of banks had a decentralised system but it came down to 5 percent this year, according to the research.

Another major finding of the research is that the banking industry is currently dominated by foreign CBS with 27 lenders running on imported systems.

Though foreign software costs higher than the local ones, banks mostly prefer them because of their functionality and flexibility, said Alam.

He said if all banks use foreign software the market share of the CBS will be Tk 1,000 crore, much higher than the combined cost of Tk 400 crore if all use local software.

Alam said the operating system remains in the control of foreigners in case of using imported software. As a result, any regulatory change can't be adopted instantly causing problems for banks, he added. 

Before 2005, some 45 banks used local software whereas 19 banks used it in 2016, according to the research findings.

"The same is true for in-house software. The number of banks using in-house software is declining day by day," the research said.

Bank Ultimas is the most popular local software, followed by Flora Bank.

In the foreign software category, T24 is the most used software with Finacle at a close second. They are followed by Flexcube, I-Stelar, MiSys and Ababil.

Thanks to the CBS systems, banks are providing real-time online banking services to customers through branches. The systems have the capability to meet all the services being provided by various electronic delivery channels like ATM, POS, Internet, and mobile banking.

Choosing the best core vendor is important for banks as it helps them employ technology effectively and ensure profitably. Otherwise, banks can put their capital, time, and reputation unnecessarily at risk, the research paper said.

According to the researcher, management should know the long-term strategic goals of the bank to identify and select technology solutions that fit the lender's current and future requirements.

Otherwise, a bank runs the risk of implementing a solution that doesn't fit its vision and the cost of switching can raise its annual technology expenditure by two to five times, the research said.

In Bangladesh, 18 percent of banks failed to select the right CBS due to lack of knowledge and vision and wrong suggestions by consultants, said the BIBM paper.